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Treasury Wine Rejects KKR's Buyout Offer

NEW YORK (TheStreet) -- Australian winemaker, marketer and distributor Treasury Wine Estates Limited(TSRYY) received and rejected a proposal from private equity firm Kohlberg Kravis Roberts(KKR - Get Report) to acquire the company for $4.70 (Australian Dollars) or the U.S. equivalent of $4.35 per share.

The stock was up sharply on that news, although, the company was obviously not thrilled by the offer. As a new shareholder, I was not happy with it either, and am glad it was rejected.

It's not all that easy these days to get direct access to pure wine plays, and outside of Leucadia National(LUK) spin-off Crimson Wine Group(CWGL), you've got to dig deep into micro-cap land in order to find any. I own one of the few smaller pure plays, but with a market cap in the $25 million range, it's too small to mention here.

Treasury, which was spun-off from Fosters Group in 2011, owns more than four dozen different brands in North and South America, Australia and Europe, including Beringer, Stag's Leap and Great Western to name a few, is a $3 billion market cap company that may be unfamiliar to many investors. That may change given KKRs buyout offer.

Last year was somewhat difficult for the company, which had sales in excess of $1.5 billion (U.S.) and about $40 million in net income, but that was down nearly 53% from 2012. A glut of inventory in the U.S. was a big issue, and the resulting write-downs of that inventory hit the company hard. Shares fell more than 50% between June and February.

What attracted me to the company was that it was simply cheap, in my view, from an asset perspective. The company has more than 27,000 vineyard acres, which is the equivalent of more than 42 square miles. Furthermore, it is relatively unburdened from a debt perspective, with just over $200 million worth (long-term). Even with the run-up following Kohlberg's buyout offer, shares still trade below book value.

A new position that was added to my portfolio less than two weeks ago, while the quick run-up in price is nice, it's also a fluke. As a value investor, there is rarely instant gratification.

I'm hoping that management sticks to its guns, and does not let Kohlberg get its hands on the company too cheaply.